Friday, February 25, 2005

Home prices, insurance rates and contractors.

In the 1990s a homebuilder worked with a few good sub-contractors. Companies who were reliable and offered good work at a good price. Most general contractors used good subs because they were liable for any defect in the subs work. Today the relationship has changed, large homebuilders are transferring all the risk to the sub-contractor. That is the model today. If you won't sign a contract assuming the liability of not only your work, but the work of other subs on the job, you will not get the contract. When you are offering sub-contracts on 200-800 new homes, you will find people who need that amount of work to stay in business. Assume the risk or go out of business. If the general has enough subs that take on the liability, they will pay for the insurance claims against the project.

How many claims are there? Thousands and thousands, some of them legitimate, some that are coming from a cottage industry of attorneys that sue every one listed on the project. The sub-contractors, or their insurance company will pay about 5,000 to settle the suit regardless of it's validity. It drives up the cost of homes, makes insurance companies fight hard against real claims filed against a new project, and drives good sub-contractors out of business.A great article in the Sac Union about this issue. If you live in the Sacramento region, you should subscribe.

I am a contractor, I understand that there are more than a few bad builders out there. Once the house is sold and they have your money, it can be impossible to get them back out to do repairs or punchlist items. These are the times to call an attorney. Here is the problem, when a crack develops in a patio in the backyard of a new home and someone trips and falls, they don't sue the General Contractor or the concrete sub, they sue everyone, the roofer, the cabinet guy, and the garage door installer all have to pay the claim.

If I install a phone outlet in a new home and a year later the roof leaks and damages the plasma screen TV, I will be named in the suit and my insurance will settle my end for a few thousand dollars. It doesn't matter that when I installed the phone jack, the roof was not there. Even if I had letter from a thousand structural engineers testifying that there is no way I can be responsible, me or my insurance will pay. It will be cheaper than fighting it in court.My insurance rate goes through the roof, my hourly price goes up, the cost of the new house goes up.

There are many factors involved the soaring prices of homes, this a large part of that increase.And please don't get me started on workmen's comp...

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About Me

Walt Lucas -
A happily married guy from Esparto. Two kids, four dogs, almond trees and a bunch of horses. Writing about Politics, Yolo County, Family Life and my constant search to become what God wants me to be.